Exporting Oil From the United States and Domestic Gas Prices

Following a federal request, the United States Energy Information Administration (EIA) recently reported its oil and gas risk assessment findings in response to the nation’s continuing ban on exporting crude oil. With both Congress and President Obama interested in ending the long-time ban, the EIA’s findings could spark a bill that would change the outlook of domestic oil production.

Surprises in the Findings

There have been a number of reasons for the ongoing ban on crude oil exports from the United States, but one of the ongoing motives has been the intimated affect on U.S. gas prices if homeland exports would be allowed. However, proponents for change have asserted the belief that allowing oil exports would not increase domestic gas prices as previously predicted. The EIA’s oil and gas reserves evaluation seems to support this assertion, finding that the domestic prices are based more on global production factors than on issues directly related to U.S. oil sales.

In fact, the EIA indicates that there are more indications that an exporting plan would actually reduce domestic gas prices and stimulate our economy. Based on basic petroleum economics training principles, the U.S. exporting its own supplies of crude oil will only increase the worldwide supply. With a greater supply to be divided among all interested countries, the demand will be less, and gas prices will fall across the board. This will include domestic prices in the United States as well as in other countries worldwide.

Changes from Current Policy

Under the current presidential administration, many of the restrictions regarding gasoline and petroleum exports have already been relaxed. For example, President Obama has allowed trade with continental neighbors Canada and Mexico in limited quantities to great success. Similarly, refined petroleum products, in contrast to crude oil, are freely exported to a variety of other countries under current policy measures to the benefit of all involved.

Because of these policies already in place, adding the movement of raw, unprocessed oil will do very little in terms of actually affecting current domestic gasoline prices. If anything, early projections seem to indicate that these gas prices will actually decrease with the expansion of crude trade opportunities.

In fact, international crude oil giant Brent has long held a near-monopoly on the prices and profits from selling oil and gasoline to the worldwide market. By introducing a discounted counterpart in the form of domestic company West Texas Intermediate, the savings from not relying on a foreign business for gasoline will be passed on to U.S. consumers who are longing for lower and more stable gas prices.

Calming the Voices of Opponents

Many local crude oil producers and oil users maintain their hesitant and skeptical demeanors in response to the proposal of utilizing more local suppliers, pointing out the long list of caveats and uncertainties that they claim poke holes in the research conducted by the EIA. These opponents to domestic exports claim that taking a leap toward a new policy will put the current well-being of many U.S. businesses and everyday citizens in jeopardy thanks to the unknown outcomes of such trade changes.

However, the EIA’s comprehensive report seems to indicate that many of these feelings of trepidation are unfounded. The United States is currently at the energy mercy of the Organization of the Petroleum Exporting Countries (OPEC) and Russia, the two main suppliers of crude oil worldwide. Enacting such a change in domestic policy by lifting the ban on exporting could drastically change the landscape of U.S. fuel consumption.

With non-partisan support from the EIA and cautious forays into the realm of crude oil exporting, members of Congress feel that such policy changes could in fact produce more domestic jobs, aid in U.S. energy production and potentially lower national fuel costs.